I wanted to create a distilled robo-advisor comparison for you to check out. Mainly because they are cool, but also because they are (potentially) a great step closer to financial democratization…which is also cool.
Before the internet, the cost of investing in the stock market was significant. If people wanted to invest, they would have to go through traditional brokerage firms, talk to “their guy (or gal)” and pay exorbitantly high commissions and fees for others to manage their money. In other words…not really for “everyone”.
With the internet came many significantly lower cost options for trading stocks and buying mutual funds on your own…a service also quickly adopted by the big brokerages. But even with that, if you wanted your money “managed” you likely would be paying high fees for personal service, or even via your mutual fund management team.
Over the last 5-10 years, however, Independent firms and large brokerages alike, are now offering you this “new service” of Artificial Intelligence to manage your investment account. Hello Mr. Robo Advisor…thanks for taking the time to meet with me today!
At this point, a list of robo advisors has become widely available and changed the investing landscape with their ease of use and low fees. In some cases, the fees are 100% less than what a live manager would cost (aka $0). Again…pretty cool.
What are Robo Advisors?
Robo advisors are software platforms that use digital algorithms and automation to offer financial planning and investment services to investors without direct human supervision.
Typically, after people open accounts, the robo advisors will ask a series of questions and make recommendations about investment options based on the answers that are provided.
The best robo advisors offer ease of setup and use, portfolio management, automated investment, rebalancing, tax-loss harvesting, strong customer service, and low or no fees.
Robo advisors also provide an avenue for new investors to invest in the market, even if they don't have large amounts of money available to invest, while getting “intelligent” oversight.
So How Do Robo Advisors Work?
In reading this robo advisor comparison, you'll find they all offer robust online investment platforms and allow you access to your investment accounts wherever and whenever (it is 2020 after all).
You can open an account using your phone, a tablet or even your old-time-y desktop (which probably is the easiest way to go)!
Depending on the robo advisor, investors might be able to open accounts for free and start investing with a small amount of money.
The onboarding process usually involves the advisor asking a series of basic questions about your life and plans. Then after determining the investor's risk tolerance and time horizon for investing, the robo advisor will then make recommendations about investments.
People can set up automatic transfers of funds into their accounts, and the robo advisor will automatically allocate the funds according to the investor's selected allocations. This allows people to invest in securities and grow their money without too much hassle.
Robo Advisor Comparison
Since the first robo advisor was “birthed,” following the market crash in 2008, quite a few more have since popped up on the playing field. I even saw a list of 32 when poking around the ol' internet. But that list of robo advisors was so long it even bored me!
Hence, the remainder of this post will discuss and compare a smaller list of robo advisors that are currently in the market, to at least start kickstart your search, if not complete it. Here is the list of advisors that will be used for our robo advisor comparison …
- Personal Capital
- Fidelity Go
- Schwab Intelligent Portfolios
- M1 Finance
We will discuss the various features of each robo advisor so you can make a more informed decision. Or perhaps you will just end up frustrated and wish I had just told you which are the BEST robo advisors to use. If you are feeling that just email me!
OK for those of you still reading…here we go….
Betterment was one of the earliest robo-advisors, founded in 2008. This option provides investors with the ability to invest in a variety of different exchange-traded funds or ETFs of stocks and bonds.
They offer taxable investment accounts, trusts, and traditional IRAs, Roth IRAs, and SEP IRAs. As of Aug. 2019, Betterment had more than $18 billion in assets under management. Some of the features of Betterment include the following:
- Free to open an account
- $0 minimum account balance
- Automated IRA rollovers
- 0.25% annual management fees for standard accounts or 0.40% annual management fees for premium accounts
- Have the option to invest in tax-deferred IRAs and SEP IRAs
- Offers a variety of stock and bond ETFs
- Offers fractional shares and automated rebalancing
Next up on our robo advisor comparison is Wealthfront. Like Betterment, it's another pioneer of the robo advising industry. Wealthfront was founded in 2008 in Palo Alto, California, and had $20 billion in assets under management as of Sept. 2019.
Wealthfront offers ETFs in 11 different asset classes. In large accounts, individual stocks are also supported. However, it does not offer fractional shares. Some of the features of Wealthfront include the following:
- Account minimum balance of $500
- 0.25% annual management fees
- Offers traditional, SEP, and Roth IRAs
- ETFs in 11 different asset classes
- Daily tax-loss harvesting and automatic rebalancing
- Offers 529 college savings plans
Personal Capital was founded in 2009 and is headquartered in Redwood Shores, California. As of July 2019, the company had more than $10 billion in assets under management. It's an online investment and financial advising platform that combines robo advisory services with access to human financial advisors.
They provide access to investing in individual securities and offer tax optimization strategies. It is better for high-net-worth investors who do not want to have to actively manage their accounts. Personal Capital has the following features:
- Relatively high fees of 0.89% for the first $1 million down to 0.49% for investors with balances of $10 million plus
- Minimum account balance of $100,000
- Asset classes include cash, U.S. stocks, international stocks, U.S. bonds, international bonds, and ETFs
- Supports taxable accounts, traditional IRAs, Roth IRAs, SEP IRAs, trusts, and cash accounts
- Certified financial planners available 24/7
- Tax-loss harvesting and automated rebalancing
Blooom was founded in 2013 and is headquartered in Leawood, Kansas. It is a robo advisor service that offers independent management of 401(k), 403(b), TSP, and other employer-sponsored retirement plans.
Investors can link their employer-sponsored plans to Blooom to receive advice about optimization. Blooom presents the following features:
- $10 per month management fees
- $0 minimum account balance
- Offers management of employer-sponsored retirement accounts
- Offers a free analysis tool
- Provides access to human financial advisors
Next up in our robo advisor comparison is Fidelity Go, which was launched by Fidelity in 2016 and is aimed at young and newer investors. It is the introductory account in Fidelity's suite of managed investment options and is all digital.
Opening an account is pretty simple, and Fidelity Go recently dropped its minimum account balance from $5,000 to $0. Here are some of the features of Fidelity Go:
- Open an account for free
- Minimum $10 balance to start investing
- Only able to invest in proprietary Fidelity mutual funds
- Can track a single goal
- Fees are 0.35% annually
- Offers individual and joint taxable accounts, traditional IRAs, Roth IRAs, and rollover IRAs
Schwab Intelligent Portfolios
Schwab Intelligent Portfolios is a robo advisor presented by Charles Schwab. Investors have access to two different services, including the base Intelligent Portfolios or the premium Intelligent Portfolios Premium services.
The basic service does not charge any advisory fees and has a minimum account balance of $5,000. The premium service offers unlimited access to financial advisors and has a minimum investment balance of $25,000 for a fee of $30 per month. Here are some of the key features of Schwab Intelligent Portfolios:
- Free to open account
- Minimum balance to invest in the basic account is $5,000 or $25,000 for the premium account
- No advisory fee for basic account; $30 monthly fee for premium account
- One-time planning fee of $300 for premium account
- Portfolio mix of up to 53 different ETFs that represent up to 20 different asset classes
- Supports taxable investment accounts, traditional IRAs, Roth IRAs, rollover IRAs, and trusts
- Financial advisors available 24/7 via chat or messaging
- Tax-loss harvesting is free for accounts with balances of $50,000 or more
Wealthsimple was founded in 2014 and is a Candian robo advising and investment company that is based in Toronto, Ontario. As of Aug. 2019, the company had $5 billion in assets under management.
Wealthsimple gives diverse portfolio choices, including portfolios that are socially responsible and some that are halal and comply with Islamic law. Some of the key features of Wealthsimple include the following:
- $0 minimum account balance
- $0 account fees
- 0.4% to 0.5% advisory fees
- Free, unlimited access to certified financial advisors
- Offers up to 10 ETFs with exposure to 10 asset classes; Halal portfolios offer up to 50 individual stocks
- Supports taxable individual and joint accounts, traditional, Roth, and SEP IRAs, trusts, and custodial accounts
- Free tax-loss harvesting
- Free automatic rebalancing on request
Ellevest was founded in 2014 and is headquartered in New York, New York. This robo advisor is focused on women, but it appeals to all investors.
It offers investment options that are focused on goals and low fees. However, it does not support many different types of accounts. Some of the key features of Ellevest include the following:
- Factors women's needs into its robo advising strategies
- Offers socially conscious investment options
- $0 minimum account balance
- Charges 0.25% management fee for digital Ellevest and 0.50% for Ellevest Premium
- Supports taxable individual accounts, traditional IRAs, Roth IRAs, and SEP IRAs
- Offers 25 ETFs and mutual funds representing 20 different asset classes
- Tax optimization strategies
- Premium members have access to certified financial advisors
Last on my robo advisor comparison is M1 Finance, who is a relative newcomer to the robo advisor space. It was founded in 2015 and is headquartered in Chicago. It presents a hybrid of a robo advisor combined with a high degree of customization.
Investors are able to choose from portfolios that have already been created to meet different goals, risk tolerances, and investing durations or to create custom portfolios by choosing their preferred stocks and ETFs. Some of the key features of M1 Finance include the following:
- Access to more than 6,000 ETFs and stocks
- Offers fractional shares
- Free to open an account
- Minimum to invest in a taxable account of $100
- Minimum to invest with a retirement account of $500
- Supports individual and joint taxable accounts, trust accounts, traditional IRAs, SEP IRAs, Roth IRAs, and rollover IRAs
- No management fees or commissions
- For M1 Plus members, access to a M1 Spend, which is an interest-earning debit account
- M1 Plus members with taxable investment accounts of $10,000 or more can access margin loans that are secured against their investment account balances
- Automatic rebalancing and dividend reinvestments
- No tax-loss harvesting
Acorns has modernized the age-old practice of saving loose change, merging the robo-advisor model with an automated savings tool. Acorns works by rounding up your purchases on linked credit or debit cards, then sweeping the change into a computer-managed investment portfolio. That approach is certainly a useful tool to save more. Acorns offers three levels of membership:
- Lite: $1 a month. Includes a taxable investment account.
- Personal: $3 a month. Adds on an individual retirement account and a checking account.
- Family: $5 a month. Includes everything in the lower tiers, plus Acorns Early, which lets you open investment accounts for kids.
- $0 to open account; $5 required to start investing
- Five portfolio types that weight 7 ETFs based on risk tolerance
- Individual non-retirement accounts
- Roth, traditional and SEP IRAs
- Online checking account with debit card
- UTMA/UGMA accounts for kids
- The app's Potential tool lets you adjust the dollar amount invested to see how your total investments will grow over time
Robo Advisor Comparison Summary
When comparing this list of robo advisors to discount and traditional brokerages, the primary advantages of robo advisors are the lower cost and ease of use, while still getting access to some form of intelligent oversight.
Robo advisors have much lower fees than traditional brokerages, and they have lower fees than most discount online brokerages since most only charge nominal or $0 trading fees, management fees, and commissions.
Robo advisors primarily give access to ETFs or exchange-traded funds. ETFs provide you with more access to different asset classes as compared to mutual funds and do not have the same higher fees that most mutual funds charge. A few provide access to individual stocks.
Many robo advisors additionally offer the ability to purchase fractional shares. These are small percentages of a share that allow you to gain a position in a stock without having to save enough money to purchase a whole share. Fractional shares allow every last dollar you have to be invested…yah!
Robo advisors may be better choices for people who are new to investing or those who prefer a hands-off approach to their portfolios. Since most of the processes are automated and rely on algorithms, robo advisors remove some of the emotional decision-making that can be problematic for investors.
Amongst our robo advisor comparison candidates, you can see the lowest cost advisor is M1 Finance. However, all of these robo advisors provide a great way for investors to build their portfolios and to build wealth, without the significant investment of time.